HMRC slams another loophole shut

The taxman is to close a loophole relating to manufactured payments received
by companies involved in sale and repurchase, or “repo” transactions.

HM Revenue & Customs said the change will be applied retrospectively from
1 October 2007.

The move follows a recent challenge to existing legislation in Chapter 10 of
Part 6 of the Corporation Tax Act 2009 (‘the repo legislation’).

It was argued manufactured payments received by companies did not have to be
taken into account for tax purposes if the related securities are not recognised
on companies’ balance sheets.

HMRC warned companies seeking to get tax deductions for manufactured payments
that have contributed to their accounting profits could put a dent in the UK’s
coffers.

“By excluding the payments, the companies’ taxable profits could be much
lower than their actual profits. The Exchequer consequences could be very
significant,” said Stephen Timms, Financial Secretary to the Treasury.

“The amendment will ensure that manufactured payments must be taken into
account in calculating profits chargeable to corporation tax if they are taken
into account in computing accounting profits,” HMRC said.

Caspar Fox partner at law firm Eversheds said: “HMRC’s previous response when
discovering tax loopholes has generally been to close them with immediate
effect.

“They have broadly resisted closing them with retrospective effect, unless
they have previously stated that this is a possibility (which is what they have
done, for example, in the area of employment tax).

Previous warning has not been given here, and so closing this tax loophole
retrospectively seems to be another sign of HMRC’s increasingly aggressive
attitude towards perceived tax avoidance.”